What are Alternative performance measures?

What are Alternative performance measuresWhat are Alternative performance measures – Alternative performance measures (APMs) may supplement Generally Accepted Accounting Principles (GAAP) reporting, and often represent an effective way of communicating important entity specific developments.

However, APMs need to be defined using appropriate descriptions and disclosures to avoid the risk of misleading the users of the financial reports.

Regulators in many jurisdictions have issued guidelines for the use of APMs that are helpful benchmarks when developing communication strategies and preparing financial reports. Entities can use these guidelines, both for compliance purposes and to facilitate effective communication.


Financial statements are the cornerstone of financial reporting for entities. In addition to GAAP measures, management often uses a variety of other financial measures to communicate information about an entity’s financial performance, financial position, and cash flows.

Why use APMs in financial communication?

The widespread use of APMs in financial communication is not an indication that GAAP-compliant financial reporting is deficient. Indeed, analysts and investors often use a combination of IFRS measures, reported APMs and their own measures to evaluate an entity’s prospects and risks. This suggests that APMs not only complement IFRS measures, but also each other.

The complementary use of APMs in financial communication may offer valuable insights to users of financial statements by highlighting key value drivers and/or the effects of certain events and transactions on the entity’s performance, financial position or cash flows. APMs may be used to explain an entity’s performance from the management’s perspective and/or to provide comparability with peers.

When externally reported APMs are aligned with the measures used internally for management purposes, they may also convey information about how management understands and manages the entity. Similarly, the external reporting of APMs used in the remuneration of management may communicate information about how management is held accountable.

What are the concerns?

While APMs are generally considered to add value to an entity’s financial reporting, there is concern over their increasing use. One reason for this concern is a perception of increasing disparity between APMs and IFRS measures. For example, in 2013 the New Zealand Financial Markets Authority1 indicated that reported non-GAAP profits for a sample of 23 issuers exceeded GAAP profits by 76%.

The debate has highlighted an area for concern that APM adjustments often have a favorable impact on the IFRS measures and that adjustments are made for the effect of events or transactions that are not unusual. Such observations raise questions about management bias.

Concerns also stem from perceptions of inconsistencies in which APMs are presented over time, and a lack of transparency regarding the calculation of the APMs. Furthermore, there are concerns that APMs are used in ways that may mislead investors, analysts and other stakeholders, a concern that is strengthened because of the lack of external assurance.

Another key concern relates to the lack of comparability across entities, even across entities within the same industry.What are Alternative performance measures

Guidelines for APMs outside the financial statements

In recent years, several regulators have published guidelines on the use of APMs outside the financial statements. These guidelines neither encourage the use of APMs in general, nor prescribe particular APMs. Instead, they encourage or require entities to adopt various practices to ensure unbiased and transparent information on financial performance, financial position, and cash flows.

Enforcers also challenge preparers on their use of APMs and urge reporting entities to improve disclosures around APMs. Some enforcers have also conducted thematic reviews on the reporting of APMs and compliance with relevant guidelines.

Others, such as users’ organizations, have also issued recommendations and guidelines about APMs. Considering the fact that the overall objective of APMs is to provide decision-useful information to the users of financial statements, such guidelines should be considered by entities when developing performance measurement strategies and deciding on specific APMs. Various recommendations and guidelines by user organizations across jurisdictions and markets are not commented on in this publication.

APMs in the financial statements What are Alternative performance measures?

In light of the concerns that APMs potentially mislead analysts, investors and other users of financial statements, the International Accounting Standards Board (IASB) has decided to address the issue in the context of financial statements reporting.

APM existing Guidelines What are Alternative performance measures?

Regulators in various jurisdictions have issued guidelines on the use of APMs in financial communication. The objective of these guidelines is to require, or encourage, entities to adopt good practices in the presentation of APMs. This part summarises the guidelines published by the International Organization of Securities Commissions (IOSCO) and some other regulators. This also outlines comments made by various enforcers on compliance with these guidelines.

APM existing guidelines for use outside financial statements What are Alternative performance measures?

International Organization of Securities Commissions (IOSCO)

Statement On Non-Gaap Financial Measures (2016)
The guidelines apply to any non-GAAP financial measure that an entity discloses outside of the financial statements.

European Securities and Markets Authority


Guidelines on Alternative Performance Measures (2015)
The guidelines apply to APMs disclosed outside financial statements in regulated information and prospectuses.
Questions and answers – ESMA guidelines on Alternative Performance Measures (2017/2018)
ESMA has provided Q&As to promote common supervisory approaches and practices in the application of the ESMA Guidelines on APMs.


Regulation S-K, Regulation G, Form 8-K, Compliance and Disclosure Interpretations
The regulations and interpretations provide guidance on the use of non-GAAP financial measures. What are Alternative performance measures?


CSA Staff Notice 52-306 (Revised) Non-GAAP Financial Measures issued (2016)
The primary purpose of this notice is to provide guidance to an issuer that discloses non-GAAP financial measures.

South Africa

Circular 4 of 2018 issued by the South African Institute of Chartered Accountants (SAICA)
The circular provides guidance on the requirement to disclose headline earnings for companies listed on the JSE Limited.


Regulatory Guide 230 Disclosing non-IFRS financial information (2011)
The guide sets out guidance on the use of financial information in financial reports and other corporate documents, such as transaction documents and market announcements, where that information is presented other than in accordance with accounting standards (non-IFRS financial information).

Summary of conceptual highlights in these guidelines


APM must be unbiased and must not be used to avoid presenting information that could have an adverse impact to the investors.


APMs must not be presented with greater prominence than the most directly comparable measure calculated and presented in accordance with GAAP. What are Alternative performance measures?

Comparatives and consistency

APMs must be accompanied by comparative information for the prior years presented in the financial reports. Their definition should not change over years and their presentation should be consistent over all periods presented.

Presentation and disclosure


What are Alternative performance measures?

In the context of APMs, labels refer to headings or the descriptions used to describe the APM. APMs must be labelled in a way that they are distinguished from GAAP measures. Labels must be meaningful and should reflect the composition of the APM.


APMs must be clearly defined with an explanation of their basis of calculation. What are Alternative performance measures?


What are Alternative performance measures?

APMs must be reconciled to the most directly comparable GAAP measure presented in the financial statements with explanation of the adjustments made.


Entities must explain the reason for presenting the APMs, including an explanation of why the information is useful.


In general, the guidelines do not include any specific guidance with respect to location of APMs and related disclosures.


What are Alternative performance measures?

Guidelines issued by regulators addressed in this publication generally do not include any specific requirements with respect to assurance of APM measures. What are Alternative performance measures?

What are Alternative performance measures

Annualreporting provides financial reporting narratives using IFRS keywords and terminology for free to students and others interested in financial reporting. The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

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